Chapter 3- Theories of International Decision Making
- As former US Secretary of State Henry Kissinger warns, foreign policy decisions are
rarely made by people having all the facts: the policy maker “has to act in the fog of
incomplete knowledge without the information that will be available later to the analyst”
Transnational actors and decision processes
- It would be an error to assume that international decisions and behaviours are influenced
solely by the choices of global leaders. No decision maker can act alone
- Leaders of all groups are constrained by various pressures and circumstances that restrict
- No single category of causation can fully explain foreign policy decisions; rather, a
number of influences converge to codetermine the decisions that produce foreign policy
- U.S presidential advisor JosephA. Califano: “ a president is a prisoner of historical forces
that will demand his attention whatever his preference in policy objectives.
- Three major sets of causal variables:
o 1. Global conditions that prevail at the time of decisions. G lobal conditions provide
constraints and opportunities for international decision making and color the degree to
which both an actor’s internal attributes and individual leader preferences can account for
the choices made.
The prevailing global circumstances define the decisional situation, provoking
the need to make decisions and restricting policy options available to the actor.
All shifts in global circumstances give rise to crucial decisions by transnational
Nixon: “ The world has changed. Our foreign policy must change with it.”
o 2. Internal or domestic characteristics of the transnational actor. The internal
characteristics- such as wealth, military might, and public opinion- of the transnational
actor making the decision heavily shape the range of choices open to the individual
Every actor on the global stage is defined by its own attributes, which also act to
determine the actor’s foreign policy choices. for example, the rise of “bureaucratic politics” among competing agencies
seeking to direct the course of a country’s foreign policy now heavily
influences that particular state’s choices.
o 3. Characteristics of individuals who are the decision- making leaders. The individual
values, personalities, beliefs, intelligence, and prior experiences of the leaders of
transnational actors are important as well because they predispose them to take certain
kinds of positions on global issues.
As constructivist theory argues, ideas and expectations within the heads of
leaders are the intellectual filers through which objective realities are interpreted.
Therefore, in any explanation of why any international decision is made, it is
imperative to take into account how leader’s ideas and images influence the
- Changes in the determinants of foreign policy occurring at time t produce decisions at a later time
(t+1), which lead to policy outcomes that impact all of the causal factors at a still later time (t+2).
Moreover, these policy outcomes have consequences for the input factors themselves at a later
time (t+3) because they exert “feedback” on these causal factors as the foreign policy decisions
alter the conditions that influence subsequent (t+4) policy making.
Three Models of Decision Making by TransnationalActors
- Decision making as rational choice
o Realism assumes that foreign policy making consists primarily of adjusting a
transitional actor to the pressures of an anarchical global system whose essential
properties will not vary.Accordingly, it presumes that all decision makers are
essentially alike—Realists assume that all decision makers are alike
o Because realists believe that every leader’s goals and corresponding approach to
making foreign policy choices are the same, the decision making processes of
each actor can be studied as though each were a unitary actor- a homogeneous or
monolithic unit with few or no important internal differences that affect its
o From this assumption can be derived the expectation that transnational actors can
and do make decisions by rational calculations of the costs and benefits of
o Rational choice: decision- making procedures guided by careful definition of
situations, weighing of goals, consideration of all alternatives, and selection of the
options most likely to achieve the higest goals. o Scholars describe rationality as a sequence of decision-making activities
involving the following intellectual steps:
Problem recognition and definition. The need to decide begins when
policy makers perceive an external problem and attempt to define
objectively its characteristics.
Goal selection. Next, those responsible for making foreign policy choices
must determine what they want to accomplish.
Identification of alternatives. Compilation of an exhaustive list of all
available policy options; opportunity cost.
Choice. Rationality requires selecting the single alternative with best
chance of achieving the desired goals.
- Impediments to rational choice
o Bounded rationality: the concept that a decision maker’s capacity to choose the
best option is often constrained by many human and organizational obstacles.
o some of the barriers that make errors in foreign policy decisions so common are
human, deriving from deficiencies in the intelligence, capability and
psychological needs and aspirations of foreign policy decision makers.
o Compounding the problem is decision maker’s susceptibility to cognitive
dissonance- they are psychologically prone to block out dissonant, or inconsistent,
information and perceptions about their preferred choice and to look instead for
information that conforms to their pre-existing beliefs to justify their choice.
o Game theory: mathematical model of strategic interaction where outcomes are
determined not only by a single actor’s preferences, but also by choices of all
o These intellectual propensities explain why policy makers sometime pay little
heed to warnings, overlook information about dangers, and repeat their past
- To better capture the way most leaders make policy decision, Robert Putnam coined the
phrase two level games. Challenging the assumptions of realism, he asserted that leaders
should formulate policies simultaneously in both the diplomatic and domestic and should
make those decisions in accordance with the rules dictated by the game. o Critics suggest that the two level game model does not go far enough and could
be improved by incorporating insights from constructivism; relies too much on
- Indeed, many decisions tend to produce unintended consequences- what economists call
externalities: the unintended side effects resulting from choices, such as inflation from
runaway government spending, that are not taken into account at the time of the decision.
- Because policy makers work with an overloaded policy agenda and short deadlines, the
search for policy options is seldom exhaustive
o Policy agenda: the changing list of problems or issues to which governments pay
special attention at any given moment.
- Prospect theory: looks at how people perceive and misperceive risks when making
choices under conditions of uncertainty, and posits that there are consistent and
predictable biases in the way that people depart from rational decision making.
o a social- psychological theory explaining decision making under conditions of
uncertainty and risk that looks at the relationship between individual risk
propensity and the perceived prospects for avoiding losses and realizing big gains.
Evidence suggests that individuals value losses twice as much as they value gains.
o One implication for decision making is that people tend to gravitate toward the
o Another decision making error: the tendency to myopically frame decisions by
focusing on short-term choices rather than long-term ones.
o Another implication of prospect theory is that when leaders take risks to initiate
bold new foreign policy directions, they will have greater difficulty admitting and
correcting those choices if they prove later mistaken. For example, Bush and Iraq
o See table 3.1
Bureaucratic Politics of Foreign Policy Decision Making
- Bureaucratic efficiency and rationality
o Bureaucracies, according to the theoretical work of the max weber, are widely
believed to increase efficiency and rationality by assigning responsibility for
different tasks to different people. o The presence of several organizations can result in multiple advocacy of rival
choices, thus improving the chances that all possible policy options will be
Multiple advocacy: the concept that better and more rational choices are
made when decisions are reached in a group context, which allows
advocates of differing alternatives to be heard so that the feasibility of
rival options receives critical evaluation.
- Limits of bureaucratic organization
o Bureaucracy: the agencies and departments that conduct the functions of a
central government or of a nonstate transnational actor.
o Bureaucracy produce burdens as well as benefits
- Bureaucratic politics model: a description of decision making that sees foreign policy
choices as based on bargaining and comprises among competing government agencies.
This model of decision highlights the constraints that organizations in
policy networks- leaders and organized interests (such as lobbies) that
form temporary alliances to influence a particular foreign policy decision-
place on decision makers’choices and the pulling and hauling that occurs
among the key participants and causes- informal groups that individuals in
governments and other groups join to promote their common interests- of
aligned bureaucracies in the decision processs.
o Bureaucratic politics model emphasizes how large-scale bureaucratic
organizations contribute to the policy-making process by devising standard
operating procedures (SOPs)-established methods to be followed in the
performance of designated tasks.
o Rather than being a value-maximizing process, then, policy making is itself an
intensely competitive game of politics. Rather than presupposing the existence of
a unitary actor, bureaucratic politics shows why it is necessary to identify the
games and players, to display the coalitions, bargains, and compromises, and to
convey some feel for the confusion.
Bureaucratic agencies are parochial and that every administrative unit
within a transnational actor’s foreign policy making bureaucracy seeks to
promote its own purposes and power. Characteristically, bureaucratic agencies are driven to enlarge their
prerogatives and expand the conception of their mission, seeking to take
on other units’responsibilities and powers.
In contrast to rational choice theory, which see decisions made by a
unitary actor, bureaucratic agencies and their staff may not agree with the
leader’s values and priorities.
- The fauluew of the US government to protect its citizens might have been more due to
the unwillingness of American leadership to listen to warnings of its national security
bureaucracies than to the crippling effects of bureaucratic struggles
o Idea that inaction is the key to success manifests itself repeatedly.
- Bureaucratic agencies are always competing for power.
- As constructivist theory explains, every bureaucracy develops a shared mind-set, or
dominant way of looking at reality, akin to the group think characteristics that small
groups often manifest.
- Group think: the propensity for members of a group to accept and agree with the
group’s prevailing attitudes, rather than speaking out for what they believe.
o an institutional mind-set, or socially constructed consensus, also discourages
creativity, dissent, and independent thinking: it encourages reliance on SOP
- debate and criticism stimulate, rather than inhibit, ideas.
Leverage and Impact of Leaders
- leaders as movers of world history
o history making individuals model: an interpretation of world politics that sees
foreign policy decisions that affect the course of history as products of strong-
willed leaders acting on their personal convictions.
i.e Mikhail Gorbachev: brought about democracy and free enterprise thus
sparking the end of USSR
o successes and failures in foreign affairs attach names to them i.e Bush Doctrone:
the unilaterial policies of the George W. Bush administration proclaiming that the
US will make decisions to meetAmerica’s perceived national interests, not to
concede to other countries’complaints or to gain their acceptance.
o History’s movers and shakers often pursue decidedly irrational policies i.e Hitler - Realism discounts leaders by assuming that global constraints “limit what leaders can
do”. Because the systemic imperatives of anarchy or interdependene are so clear, leaders
can only choose from a limited range of alternatives.
o Realism cannot account for the times when leaders’choices ultimately prove
- Instrumental rationality: pictures leaders as powerful decision makers who are able,
“based on their perceptions and interpretations, to build expectations, plan strategies, and
urge actions on their governments about what is possible”
o a conceptualization of rationality that emphasizes the tendency of decision makers
to compare options with those previously considered and then select the one that
has the best chance of success.
- Constraints on individual leadership
o Leaders are not all powerful determinants of states’foreign policy behaviour.
o The great person versus zeitgeist ( the spirit of the times, or the dominant cultural
norms assumed to influence the behaviour of people living in particular periods)
- The relevant question, then, is not whether leaders’personal characteristics make a
difference, but rather under what conditions their characteristics are influential.
- The impact of leaders’personal characteristics on foreign policy decisions generally
increases when their authority and legitimacy are widely accepted or when leaders are
protected from broad public criticism.
- Aleader’s political efficacy or self-image- the extent to which policy makers’self-
confidence instills in them the belief that they can effectively make rational choices-
combined with the citizenry’s relative desire for leadership, will also influence the degree
to which personal values and psychological needs govern decision making.
o E.g. when public opinion strongly favours a powerful leader, and when the head
of state has an exceptional need for admiration, foreign policy will more likely
reflect that leader’s inner needs.
- Leader’s gender may also influence their decision making. Feminism suggests that men
and women tend to see issues such as war, peace, security and use of military force in
- Similarly, social constructivism considers the existence of different values and views
between women and men as a product of distinct socialization experiences. - The time of when a leader is elected also impacts their decision making (i.e if they were
the successor of an assassinated president, a national crisis is a potent circumstance that
increases a leader’s control over foreign policy making).
- Acrisis can liberate a leader from constraints
Domestic determinants of foreign policy decisions
- Domestic or internal influences are those that exist at the level of the state, not the global
- State attributes may influence different countries’foreign policy choices.
o State characterisitcs that shape foreign policy behaviour, such as its size, wealth,
and the extent to which its leaders are accountable to its citizens in comparison
with other states.
- Military capabilitites
o Realist proposition: states preparation for war in order to survive strongly
influence their later use of force.
o Although most states may seek similar goals, their ability to realize them will vary
according to their military capabilities.
o Because military capabilities limit a state’s range of prudent policy choices, they
act as a mediating factor on leader’s national security decisions.
o What states believe about their own military capabilities and those of their
adversaries (and their enemies’intentions) guide their decisions about war and
i.e Iraq, by 1990 had 4 lagest army, decided to attack Kuwait to seize
their oil fields.
- Economic conditions
o The level of economic and industrial development a stay enjoys also affects the
foreign policy goals it can pursue.
o Generally, the more economically developed a state, the more likely it is to play
an activist role in the global political economy.
o Rich states are often satisfied states that have much to lose from revolutionary
change and global instability. As a result, they usually perceive the status quo as serving their interests and often forge international economic policies to protect
and expand their envied position at the pinnacle of the global hierarchy.
o Generalization about the economic foundations of states’international political
behaviour often proves inaccurate.Although levels of economic development
vary widely among states in the global systems, they alone do not determine
foreign policies. Leaders’perceptions of their opportunities and constraints that
their states’economic resources provide may more powerfully influence their
foreign policy choices.
- Type of government
o Astate’s type of government demonstrably constrains important choices,
including whether threats to use military force are carried out.
o Important distinction between constitutional democracy (representative
government) vs. autocratic rule ( authoritarian or totalitarian)
o In neither system can political leaders survive long without the support of
organized domestic political interests, and sometimes the mass citizenry.
o In a democracy, public opinion and preferences may matter, and therefore
differences in who is allowed to participate and how much they exercise their
right to participate are critical determinants of foreign policy choices.
o Thucydides observed that what happened within the Greek city-states often did
more to shape their external behavior than did interactions between the states.
o Diversionary theory of war: the hypothesis that leaders sometimes initiate
conflict abroad as a way of increasing national cohesion at home by diverting
national public attention away from controversial domestic issues and internal
o some see the intrusion of domestic policies into foreign policy making as a
disadvantage of democratic political systems that undermines their ability to deal
decisively with crises or to bargain effectively with less democratic adversaries
and allies. democracies are subject to inertia.
o In contrast, authoritarian governments can make decisions more rapidly, ensure
domestic compliance with their decisions, and perhaps be more consistent in their
foreign policy. But there is a cost: nondemocracies often are less effective in developing
an innovative foreign policy b/c of subordinates’pervasive fear of raising
Global influences on foreign policy
- Global or external influences on foreign policy include all activities occurring beyond a
state’s borders that affect the choices its officials and the people they govern make.
Global distribution of power
o Polarization refers to the degree to which states cluster around the powerful.
in a highly bipolarized system small and medium sized states form
alliances with one or two dominant powers.
o Polarity: the degree to which military and economic capabilities are concentrated
in the global system that determines the number of centers of powers.
o Polarity and alliance polarization influence foreign policy by affecting the
decision latitude possessed by states.
o E.g., when power is concentrated in the hands of a single state in a unipolar
system, it can more easily choose to use military force and intervene in the affairs
of others than it would in a system characterized by a distribution of shared
power, where rivals might obstruct its actions.
- The advantages of having oceans as barriers to foreign intervention, combined with the
absence of militarily powerful neighbours, permitted the US to develop into an industrial
giant and to practice safely as isolationist foreign policy for more than 150 years.
- Geography influences a states’foreign policy goals.
- Geopolitics: the theoretical postulate that states’foreign policies are determined by their
location, natural resources, and physical environment.
- states with extensive coastlines and ports enjoyed a competitive advantage.
- Sir Halford Mackinder and Nicholas Spykman: argued that not only location but also
topography, size, climate and distance between states are powerful determinants of
individual countries’foreign policies.
- Chapter 3- Theories of International Decision Making - Geoeconomics: the relationship between geography and the economic conditions and
behaviour of states that define their levels of production, trade, and consumption of goods
- Some analysts argue that geoeconomics (the distribution of wealth) will replace
geopolitics( the distribution of strategic military and political power) as the most
important axis around which international competition will revolve and will determine
the globe’s future density.
International political economy
- International political economy: the study of the intersection of politics and economics
that illuminates why changes occur in the distribution of states’wealth and power
o Emergred during the 1970s as a result of the BWoods order falling out and the oil
crisis of 1973
o Shorthand for a cluster of interconnected phenomena
o Globalization is the integration of markets, finance, and technology in a way that
shrinks the world from a size medium to a size small.
- International monetary system: the financial procedures used to calculate the value of
currencies and credits when capital is transferred across borders through trade,
investment, foreign aid, and loans.
- Capital flow does not have strong supranational regulatory institutions.
- Globalization of finance: the increasing trans nationalization of national markets
through the worldwide integration of capital flows.
o Implies the growth of a single, unified global market
- Arbitrage: the selling of one currency (or product) and purchase of another to make a
profit on changing exchange rates.
o Increase in this market
- What is different now is the speed and spread of the movement of finance capital
throughout the entire globe. For example, most stock purchases are done by high
frequency trading firms (HFTs), which rely on computer programs to execute trades with
incredible rapidity - Combination of rapid, computer-driven trading and sheer volumes of processed shares
can produce rapid swings in global stock markets
- Global market reveals limitations in the power of the state
- With globalization undermining states’regulatory capabilities, the assumption of realist
theory that states are autonomous, unitary actors in control of their own international
economic affairs is being undermined.
- Avast majority of global capital goes to the Global North and East, and all countries all
mutually vulnerable to rapid transfers of capital in this globalized system.
- Global south is typically the most dependent and vulnerable to shifts in the financial
- G-20: a group of the twenty largest economies that was formed in the aftermath of the
Asian financial crisis.
- The currency exchange rate directly influences the price of these goods and thus affects
the flow of international trade.
- Monetary system: the set of institutions, rules, and practices underlying currency
exchanges and holdings, which facilitates global economic transactions, such as trade,
investment and travel.
- See table 10.1
- Monetary policy: the decisions made by states’central banks to change the country’s
money supply in an effort to manage the national economy and control inflation, such as
changing the amount of money in circulation and raising or lowering interest rates.
- Exchange rate: the rate at which one state’s currency is exchanged for another state’s
currency in the global market place.
- Movements in a state’s exchange rate occur in part when changes develop in people’s
assessment of the national currency’s underlying economic strength or the ability of its
government to maintain the value of its money.
- Adeficit in a country’s balance of payment, would likely cause a decline in the value of
its currency relative to that of other countries.
- The extent to which governments can ultimately affect their currencies’value in the face
of large transnational movements of capital is increasingly questionable. - States face three main sets of competing values, or “trade-offs”
o Inflation versus enemployment
o Strong versus weak currency valuation strategies
o Competing values of stability vs. autonomy
Basic problem is that in a system where capital flows freely, it is
impossible to have both stability and autonomy.
- Governments attempt to manager their currencies to prevent inflation. Inflation occurs
when the gov. creates too much money in relation to the goods and services produced in
- Creation of money- whether through increasing money supply or lowering interest rates-
does serve to stimulate the economy in the short term.
- Restrictive monetary policy is very useful in curbing inflation or helping the government
to reduce debt. Yet such actions slow an economy down, which can result in increased
unemployment and even recessions.
- In a flexible exchange rate regime, the exchange rate for a given currency should ideally
reflect the health of its economy (or lack thereof).
- See table 10.2
- There are benefits to maintaining a weak currency, through such means as capital
controls, fixing exchange rates, or even currency devaluations.
o Devaluation: the lowering of the official exchange rate of one country’s currency
relative to other currencies. Generally done to increase exports, as devaluation
lowers the relative prices of a country’s exports. However, it can also reduce the
spending power of citizens within that country.
- a fixed exchange rate regime provides stability, yet it gives states no freedom to conduct
- Aflexible exchange rate gives states autonomy to conduct their own monetary policies.
Bretton Woods and Beyond
- US sought free trade, open markets, and monetary stability o Tenets of commercial liberalism, which advocates free markets with few barriers
to trade and capital flows
- Britain led by Keynes
- 3 main bases of Bwoods
o 1) power was concentrated in the rich Western European and NorthAmerican
countries, which reduced the number of states whose agreement was necessary for
o 2) a compromise was reached between the contrasting ideologies of the US and
Britain. Commercial liberalism vs. mercantilism. Mix of ideologies termed
embedded liberalism: dominant economic approach during the BWoods system,
which combined open international markets with domestic states intervention to
attain such goals as full employment and social welfare.
o 3) Bwoods worked because the US assumed the burdens of hegemonic leadership,
which others willingly accepted.
- It is useful to characterize the contemporary international economic system as a Liberal
International Economic Order (LIEO)- the set of regimes created after WW2,
designed to promote monetary stability and reduce barriers to the free flow of trade and
o 3 institutions formed o maintain LIEO: GeneralAgreement on Tariffs and Trade
(GATT) which became WTO, IBRD which later became World Bank, and IMF
- In 1930s states couldn’t maintain their fixed exchange rate regimes.
- Negotiating parties agreed that the postwar monetary regime should be based on fixed
exchange rates, and governments were assigned the primary responsibility for enforcing
the rules of the new order.
- To provide a stabilization fund to help countries offset short-term balance of payment
problems, they set up IMF; set up to function like a credit union; countries contributed to
the fund and were able to draw capital from it to help them maintain balance-of-payments
equilibrium, and hence exchange rate stability.
- Later established IBRD, later known as WB, to provide capital for longer-term
development and recovery projects.
- Backed by a vigorous and healthy economy, a fixed relationship between gold and the
dollar (pegged at $35 per ounce of gold), and the US commitment to exchange gold for dollars at any time (known as dollar convertibility), the dollar became a universally
accepted parallel currency.
- Bwoods regime was based on fixed-but adjustable exchange rates. To maintain value of
their currencies, central banks in other countries used the dollar to raise or depress their
- Marshall Plan provided Western European states with billions of dollars in aid to buy the
US goods necessary for rebuilding their war-torn economics.
- US also encouraged deficits in its own alance of payments as a way of providing
international liquidity : reserve assets used to settle international accounts.
End of Bwoods
- By 1960s it became apparent that the system was unsustainable.
- As the use of the dollar- as well as the amount of dollars in circulation- continued to
expand, the resulting US balance of payments deficit balance became increasingly
- Unlike other counties, the US was not able to adjust the value of its currency, as it was
pegged to gold.
- US began to pursue expansionary macroecnomic tactic during the 1960s to finance
polciies such as the Vietnam war and increased social spending. Such spending further
exacerbated the balance of payments deficit.
- The large gap between the amount of dollars in circulation and the amount of dollars
actually supported by gold holdings was known as dollar overhang: condition that
precipitated the end of the BWoods era, in which total holdings of dollars outside of the
US central bank exceeded the amount of dollars actually backed by gold.
Floating Exchange Rates and Financial Crises
- In 1971, Nixon announced that the US would no longer exchange dollars for gold. With
the price of gold no longer fixed and dollar convertibility no longer guaranteed, the
Bwods system gave way to a substitute system based on floating exchange rates: an
unmanaged process in which governments neither establish an official rate for their
currencies nor intervene to affect the value of their currencies, and instead allow market
forces and private investors to influence the relative rate of exchange for currencies
between countries. Market forces> government intervention determine currency values o Was expected to make exports cheaper and imports more expensive, which turn
would pull the currency’s value back toward equilibrium- all without the need for
central bankers to support the value of its currency.
- Though flexible exchange rates give governments the autonomy to conduct their own
fiscal and monetary policies, these same market forces hold governments accountable for
their policies and actions.
- Financial crises were compounded by massive defaults by countries unable to make
interest payments on their debts.
- In 1996, WB began the Heavily Indebted Poor Countries (HPIC) Initiative, which aimed
to provide debt relief and encourage reforms in forty countries,
- Given the large volumes of debt, as well as the rapidity with which currencies flow across
borders, conditions have been ripe for financial crises, whether due to poor government
practices (such as taking on too much debt) or the massive boom and bust patterns of
global investment and currency markets.
- Criticism of SAPs
o Have been linked to reductions in social spending, greater income equality, and
lower levels of economic growth.
o Criticized because it is mainly run by the |Global North; neocolonialism
Crisis of 2008
- The first phase of a crisis cycle is displacement
o Refers to a change in the system that alters profit opportunities and creates new
opportunities for financial gain.
o Increased attention to mortgage and securities market
o Low interest rates meant that mortgages were less expensive for US homeowners.
o Sensing opportunity, banks created instruments to link the “pool” of money to the
housing market, by selling securities based off of the value of these mortgages to
o As a result, the investors made a higher rate of return from the mortgages,
homeowners reaped the benefits of lower interest rates, and banks made billions
of dollars as intermediaries. - Second phase of the crisis- “boom”period- in which money pours into these new
o Pool of money grew
o To further service the pool, banks began to invent more investment instruments
based off this market
- Overtrading stage
o Involves pure speculation for a price rise, an overestimate of prospective returns,
and excessive leveraging or gearing where additional debt is taken on purely for
the purposes of making investments.
o To keep market going, banks began to sell mortgages to subprime buyers.
o Investment bankers continued to use instruments based off the mortgage
securities, such as so-called “synthetic” securities, which were essentially
repackaged derivatives based off derivatives based off the securities themselves.
o The market for collateralized debt obligations, which functioned as de facto
insurance for the mortgage-backed securities and the various derivatives, boomed.
- Revulsion/ panic stage
o Factors: increasing loan defaults by homeowners, plummeting real estate values,
and severe liquidity problems of the banks that were overleveraged in this entire
o As the mortgage market began to fall, the speculative markets and instruments
built around it- whose total cash value was many times more than the value of the
mortgages themselves- also collapsed.
o As a result, banks and investors literally ran out of money, and the credit market
in the US and much of the world collapsed.
o As a result of US bailing out its own financial sector, global FDI and trade both
experienced unprecedented declines in 2009.
- Crisis questions US leadership
- Though the dollar still holds the exorbitant privilege of being the global currency of
choice, talk of using the euro or Chinese renminbi as an alternate reserve currency
indicates an underlying lack of confidence in the US economy. - Some analyst go so far as to argue that a Beijing Consensus, in which the state plays a
much heavier role in the marketplace, may be seen as a possible alternative to the
commercial liberalism of the Washington Consensus.
- The economic crisis and US recession drastically increased China’s prominence as the
largest holder of US debt securities, as its share of the total US debt almost increased to
50 percent from 2008- as of March 2012 China held almost $1.2 trillion in US debt.
- The global south weathered the global economic crisis better than expected with the
largest developing country stock markets rebounding and private capital flows resuming.
- Greek financial crisis
o Protests were a response to the passage of austerity measures, including massive
cutbacks in health aned education spending, layoffs of public employees, and and
the privatization of state-run industries, and tax increases on such items as heating
- Accumulation of debt was driven by several longer-term factors, including heavy
government spending, an inefficient and corrupt tax collection system, a largely
uncompetitive industrial base, ready acess to cheap credit, and lax enforcement of the EU
- Goldman sach’s involvement
o Helped Greece to hide portions of its debt from public view through a complex
array of derivatives and side deals, such a spaying Greece to trade away future
rights to longterm government revenues such as airport fees and lottery proceeds.
Whither the International FinancialArchitecture?
- In dealing with 08 crisis, efforts were made to improve the rather informal system of
financial cooperation between states.
- G20>G8 forum for communication
o Larger developing economies ofArgentina, Brazil should have input
- Despite their common interest in recovering from the current crisis and averting future
crises, the members could not agree on a common set of policies to help their own
economies recover and did not want to establish a supranational regulatory body to deal
with global financial exchanges.
- Main issues of contention in 2010 meeting was currency imbalances, in particular the
undervaluing of the Chinese renminbi. - Group id make an effort to increase the role of emerging market countries in the IMF, in
particular giving China an increase role in the organization .
- Criticism of IMF
o Has sought to give individual countries more flexibility and loosen up the
conditionality requirements to better take into account the specific needs of each
o Admits failure of failing to predict 08 crisis
o Many still feel that IMF fails to provide adequate representation for emerging
economies such as India, brazil, and Korea.
o There is only piecemeal regulation of investment banks, allowing ample room for
- Global investment flows continue to proliferate, and there is every reason to expect that
the currency dilemmas facing the world will continue to intensify.
- Some argue that regional solutions to financial issues may be a more viable alternative
- The EU solved the problems of erratic exchange rate fluctuations in 2002 by creating a
regional currency union centered around its common currency, with the hope being that
a single currency would make the EU a single market for business, and that the euro
would promote economic growth, cross-border investment, corporate innovation and
efficiency, and political integration.
o RCU: the pooling of sovereignty to create a common currency (such as the EU’s
euro) and single monetary system for members in a region, regulated by a
regional central bank within the currency bloc.
- Criticism of common Euro currency
o Is the end result of a decades-long process of economic integration.
o An overly ambitious political change designed to create a European superstate
and thereby erase the individuality and economic and political sovereignty of
o Adopting euro sacrifices policy autonomy for currency stability
o In dealing with their financial problems, Greek officials are unable to increase
their money supply and are faced with drastic austerity measures to resolve their
balance of payment problems. Chapter 11- International Trade in the Global Marketplace
Globalization and Trade
- Trade integration: the difference between gross rates in trade and GDP
o as trade integration grows, so does globalization, because states ‘interdependence
increases when countries ‘exports account for an increasing percentage of their
- world trade consistently exceeds the growth in global GDP
- global north reap benefits
- the spread of info tech, the ease with which new business software can be used, and the
comparatively lower wage costs in developing countries are among reasons why the WB
predicts that developing countries will capture an increasing share of world trade in
Trade, MNC, and Globalization of production
- production of goods is commonly dispersed as different components are made in diff.
- Globalization of production: trans-nationalization of the productive process, in which
finished goods rely on inputs from multiple countries outside of their final market.
- Reality: countries don`t trade with each other, MNC`s do
- Asubstantial portion of global trade is now intra-firm trade: cross-national trade of
intermediate goods and services within the same firm.
- MNC`s have become massive NGOs rivaling states in financial resources.
- FDI affects global identities as well as global trade.
- Globalization of production will only increase
- Aprominent pattern is the rise of the Global South as a fully engaged participant in FDI
- Developing countries are recipients of investments from abroad
- Global south countries are also investing outside of their own borders
Globalization of labour - Good cannot be produced without labour.
- Globalization of labour: integration of labour markets, predicated by the global nature
of production as well as the increased size and mobility of the global labour force.
o has led to undocumented immigration, use of child labour, and outsourcing
- the mobility of labour, while substantial, is far less than the mobility of capital, as only a
small portion of the overall labour pool actually relocates to another country.
- Law firms and corporate legal departments are beginning to look at outsourcing as a way
to cut costs.
o According to Indian estimates, legal-process outsourcing grew from $136 million
in 06 to $440 million in 2010, with an anticipated growth to $1.1 billion in 2014.
- Wages aren`t only factor that determines where global capital will locate; operating
expenses may increase if productively isn`t comparatively as high
- Globalization acts to increase the purchasing power of these workers.
o Global commerce enables consumers to purchase greater selections of goods at
lower prices than would be the case without globalization
- MNC often bring in better technology and labour policies than domestic corporations.
- They also encourage countries to increase the skill and productivity of their labour force
via education and healthcare
- Increased FDI has been found to decrease incidents of the use of child labour
Contending trade strategies
- The shadow of the great depression
o At Bwoods two liberal principles established: convertible currencies and the free
flow of goods and capital
Basic mission was to encourage free trade among countries by reducing
barriers to trade and serving as a common forum for resolving trade
3 primary principles:
1) reciprocity: mutual or reciprocal lowering of trade barriers 2) non-discrimination: principle that goods produced by all member
states should receive equal treatment, as embodied in the ideas of most
favour nation (MFN) and national treatment.
• MFN principle holds that the tariff preferences granted to one state
must be granted to all others- in other words, there could be no
favoured nation among members
• National treatment means that foreign gods are treated equally with
domestic goods, and that countries are not able to enact policies,
such as taxes or capricious regulations, to give their domestic
products any advantage over foreign products.
3) transparency: the GATT called for transparency in trade policy,
meaning that trade regulations and barriers need to be clearly known
among all states.
GATT was successful in liberalizing trade.
When 1994 Uruguay Round concluded GATT became WTO
Further strengthened by being given the power to settle disputes between
- Clash between liberal and mercantilist values
o Many controversies in the international political economy are ultimately reducible
to differences between liberalism and mercantilism (see table 11.1)
o Commercial liberalism
Economic relations: harmonious
Major actors: households, firms
Goal of economic activity: maximize global welfare
Priority of economics vs. politics: economics determines politics
Explanation for global change: a dynamic, ever-adjusting equilibrium Promote free international trade to lift the poor from poverty and to
expand political liberties
Adam smith greatest advocate
• If individuals rationally pursue their own self-interest, they will
maximize societal interests as well
• States should focus on absolute advantage: the liberal economic
concept that a state should specialize only in the production of
goods in which the costs of production are lowest compared with
those of other countries.
David Ricardo and comparative advantage: the concept in liberal
economics that, even if a state does not have an absolute advantage in
production of any good, a state will still benefit if it specializes in the
production of those goods that it can produce at a lower opportunity cost.
Implicit assumption in liberalism is that markets succeed according to
their own logic.
Minimum state regulation of the national economy will maximize growth
• Commercial liberal theory (CLT) promises that the invisible hand
will maximize efficiency so that everyone will gain, it does not
promise that everyone will gain equally.
• Globalization has not benefited middle-income countries as much
as richer and poorer states.
• CLT more concerned with absolute gains than relative gains.
• Mercantilist theory is more concerned with political competition
among states that determines how economic rewards are
Economic relations: conflictual
Major actors: states
Goal of economic activity: serve the national interest Priority of economics vs. politics: politics determines economics
Explanation for global change: the product of shifts in the distribution of
states` relative power
Gov has an affirmative role to play in the economic well-being of a state
• Viewed the acquisition of gold and silver as the route to state
power and wealth, and imperialistically acquiring overseas
colonies was seen as means to that end.
• Later evolved into economic nationalism and mercantilism
Mercantilists focus on zero-sum competition and are therefore more
concerned that the gains realized by one party in a trade exchange will
come at the expense of the other trade partner.
For mercantilists, relative gains are more important than both parties`
Adherence to liberal trade can undermine the pursuit of national security
and long-term economic development.
Trade and Global Politics
- Hegemonic stability theory: based on the proposition that free trade and international
peace depend on a single predominant great power, or hegemon, that is willing and able
to use its economic and military strength to protect rules for international interaction.
o Underlying assumption to hegemonic stability theory is that a stable and
prosperous global economy approximates a public or collective good, in that it
provides benefits that are shared by all and from which no one can be selectively
o Problematic nature of providing public goods= collective action dilemma
Paradox regarding the provision of collective goods in which there is no
accountability for paying the costs of maintaining or providing the good.
o Leads to free riders
- Trade ties and the resulting interdependence encourages peace o Taiwan and China have improved relations through bilateral trade
o Growth in trade leads to economic prosperity
- Trade tries, and the granting of preferential access to markets, are commonly established
with developing countries as a way to help them compete in the global market and thus
achieve economic growth
o Leading exmaples include the WTO`s Generalized System of Preferences, which
exemptes developing countries from some of the non-discrimination and
reciprocity roles of the organization
- Economic sanctions- deliberate actions against a target country to deprive it of the
benefits of continuing economic relations- are the most common way that trade can be
used as a stick for coercive diplomacy
o Increased use of them
o Sanctions are seldom effective in impairing the military potential of their targets
o Rarely successful as a substitute to warfare
o Impose significant costs on its citizens
US sanctions against Iraq during the 1990s were argued to be sanctions of
mass destruction due to the catastrophic impact of the resulting food
shortages on Iraqi citizens.
• Caused deaths of more than 250,000 iraqi children
o ``smart sanctions``: try to focus more closely on specific elements of the target
country, such as the freezing of leaders` assets
Still not that effective
- Liberal trade policies produce best result
- Many states remain unwilling to open their domestic markets to foreign imports because
they are unwilling to undertake reforms at home to create a free domestic economy.
- Economic freedom at home may produce many benefits, but many governemnts are
unwilling to realize these benefits through the liberalization of their local economies.
o Economically closed countries also tend to be the poorest and most corrupt - Future preservation of the free-trade regime is unlikely in the absence of increases in the
globe`s percentage of free governments and free economies
The Fate of Free Trade
- Protectionist pressure increase when jobs are lost
- In the aggregate, the societal benefits of free trade greatly outweigh the costs. Yes these
consumer benefits are not noticed.
- You`re more likely to revolt if plants and jobs start being outsourced
- There are greater political incentives to organize against free trade and for these forces to
influence the political process.
- Tariffs- taxes placed on imported goods
- Import quotas- numerical limit on the quantity of particular products that can be
- Export quotas- barriers to free trade agreed to by two trading states to protect their
domestic producers.Along those lines, orderly market arrangements (OMAs) are
formal agreements through which a country accepts limiting the export of products that
might impair workers in the importing country, often under specific rules designed to
monitor and manage trade flows.
o OMAs: voluntary export restrictions through government-to-governemnt
agreements to follow specific trading rules.
o Voluntary export restrictions: protectionist measures in which exporting countries
agree to restrict shipments of a particular product to a country to deter it from
imposing an even more burdensome import quota.
- Nontariff barriers: measures other than tariffs that discriminate against imports without
direct tax levies and are beyond the scope of international regulation.
o Include government regulations
o More difficult to detect and dismantle
o Two main forms of NTBs 1) countervailing duties: government tariffs to offset suspected subsidies
provided by foreign governments to their producers.
2) antidumping duties: taxes placed on another exporting state`s alleged
selling of a product at a price below the cost to produce it.
- Infant industry used to justify mercantilist trade policies: newly established industries
(infants) that are not yet strong enough to compete against mature foreign producers in
the global marketplace.
o Tariffs, or other forms of protection are necessary to protect young industries
- Strategic trade policy: government support for particular domestic industries to help them
gain competitive advantages over foreign producers.
Uneasy Coexistence of Liberalism and Mercantilism
- States seek to reap the benefits of interdependence while minimizing its costs.
- US trade policy reflects twin instincts: to push for trade liberalization in foreign markets
while cushioning the short-term costs of imports to the US economy and employment
- Principle beneficiary of American`s foreign assistance programs has always been the US.
Close to 80 percent of US Agency for International Development`s contracts and grants
go directly to American firms.
- Implementation of theAfrican Growth and Opportunities Act (AGOA) by the US has
been used as a chip for US to getAfrican nations to vote in the UN according to what US
wants to do.
- Overall tariff levels in the US are lower than those in developing world.
- The greatest hypocrisy is that the US, which preaches the merits of free trade more
strongly than almost any other country, spends tens of billions to prevent its own markets
from being free.
- Trade game is being rigged by the routine and lucrative corruption known as rent-
o Rents: higher-than-normal financial returns on investments that are realized from
market imperfections, such as government influence
Development of the WTO
- Currently less than 0.25 percent of world trade is subject to tariffs o Has helped reduce tariffs
- The Doha Round, which officially began in 2002, has a very ambitious agenda for trade
liberalization that addresses many of the remaining nontariff barriers as well as other
trade-related items that are high on the global agenda, including intellectual property
rights, environmental issues, trade in services, and trade-related investment measures.
- WTO is expanding membership
- The wto forced the US to rescind its 2002 steel tariffs
- Has a powerful dispute resolution mechanism
- Recent additions to the WTO- Cambodia, China, and SaudiArabia- underwent sweeping
reforms of their trading regimes, including increases in the accountability and
transparency of their trade policies, in order to make it through the accession process to
join the WTO
- Wto processes relates to democratic processes such as political participation and holding
of free and fair elections
o WTO has begun to confront a broad variety of issues related to international trade
that go far beyond simple import taxes.
o Increased membership makes it difficult
Previous `club model` no longer applicable
G5 emerging economies- China, India, Brazil, Mexico and SouthAfrica-
have become very assertive in trade negotiations
Regional trade arrangements: supplement or substitute for the WTO?
- EU= earliest example
- Regional trade agreements: treaties that integrate the economies of members through
the reduction of trade barriers.
o Been growing
o Encourage trade liberalization, albeit among smaller groups of states
o Creats legal a muddled legal foundation for trade
World Trade and the Financial Crisis - World trade fell 9 percent in 08
- In 2010, global trade came back very strongly, growing 13.8 percent.
- Crisis of 08 caused a historic drop in world trade levels due to 3 reasons:
o 1) led to overall downturn in world economy, which created a huge fall in
o 2) led to collapse of credit markets; no credit to borrow to trade
Economic downturns tend to encourage protectionism
Murky protectionism: nontariff barriers to trade that may be ``hidden`` in
government policies not directly related to trade, such as environmental
initiatives and government spending
• Americans put up $30 billion to support automotive industry
Chapter 5- The Global South in a world of powers
- Global North: a term used to refer to the world`s wealthy, industrialized countries
located primarily in the NorthernHemisphere.
- Global South: a term now often used instead of ``Third World`` to designate the less
developed countries located primarily in the Southern Hemisphere.
Colonial origins and consequences
- Rules governing international politics were constructed in the 1648 Peace of Westphalia
following Europe`s Thirty Years` War.
- The origins and persistence of the inequalities of states stem in part from the fact that
today`s modern global system was initially, and remains, a socially constructed reality
by,of, and for the most powerful states.
- Many analysts see the history of colonialism the eropean conquest of indigenous peoples
and the seize of their territory for exclusively European gain, as the root source of the
- Today`s inequalities are a product of that past colonization.
- During the cold war, the term Third World was used to distinguish the growing number
of newly independent but economically less developed states that, for the most part,
shared a colonialist past with those states aligned with either the communist East or the
capitalist West. - However, the third world soon was used to refer to those countries that had failed to grow
economically in a way that was comparable to countries of the First World, the
industrialized great powers such as Europe, NorthAmerica and Japan.
- The so-called Second World, consisting of the Soviet Union and its allies, was
distinguished by a communist ideological commitment to planned economic policies
rather than reliance on free-market forces.
- Small powers: countries with limited political, military, or economic capabilities and
- Among the countries of the Global South, a distinction is also made that recognizes the
emerging powers as those that seek a more assertive role in international affairs, possess
enough resources to potentially realize their goals, and are experiencing increasing
influence in world politics- particularly with regard to the global economy.
- Global South countries also vary politically and culturally, ranging from democratic
Costa Rica to autocratic Myanmar.
- Most of the ethnic national conflicts that are now so prevalent have colonial roots, as the
imperial powers drew bordres within and between their domains with little regard for the
national identities of the indigenous peoples.
First Wave of European Imperialism
- First wave of euopean empire building began in the late 15 century, as the Dutch,
English, French, Portugese and Spainish used their naval power to conquer territories for
- The economic strategy underlying the relationship between colonies and colonizers
during this era of classical imperialism is known as mercantilism- an economic
philosophy advocating government regulation of economic life to increase state power;
an economic philosophy advocating government regulation of economic life to increase
o Favourable balance of trade= best way to become rich
- Colonial empires they had built began to crumble. Britain`s 13 NorthAmerican colonies
declared their independence in 1776.
- As Europe`s colonial empires dissolved, belief in the mercantilist philosophy also waned.
- Classical liberal economic theory: a body of thought based onAdam Smith`s ideas
about the forces of supply and demand in marketplace, emphasizing the social and
economic benefits when individuals pursue their own self-interest. - Following Smith and other liberal free-trade theorists, faith in the precepts of laissez-
faire economics gained widespread acceptance.
o The philosophical principle of free markets and free trade to give people free
choices with little government regulation.
The Second Wave of European Imperialism
- From the 1870s until the outbreak of ww1, a second wave of imperialism washed over
the world, as Europe- joined later by the US and Japan aggressively colonized new
- Africa fell under control of 7 european powers.
- Foreign great powers carved China into separate zones of commerce, which the each
individually controlled and exploited for profit.
- Japan itself also imperialistically occupired Korea and Formosa.
- US expanded its continent, acquired Puerto Rico and the Philippines, Cuba-
- Great Britain, in a single generation expanded its empire to cover one-fifth of the Earth`s
land area and comprised perhaps one-fourth of its population.
- New imperialism proliferated due to the nature of global economy.
- With the Industrial Revolution, capitalism grew- emphasizing the free market, private
ownership of the means of production, and the accumulation of wealth. Radical theorists
following Karl marx and Vladimir Lenin, who called themselves adherents of
communism, saw imperialism`s aggressive competition as caused by capitalists` need for
profitable overseas outlets for their surplus production.
- Sharing a critical perspective of the capitalist world economy, world system theory saw a
world division of labour where the (industrial) core areas exploit the ( nonindustrial)
periphery, and colonization provided a means for imperial control over foreign lands.
- Belief that economics explained the new imperialism: it was rooted in the material needs
of advanced capitalist societies for cheap raw materials and additional markets to
consume growing production.
- Power and prestige another motivating factor to colonize
o According to J.AHobson
o Hobson believed that imperialism through overseas expansion was simply a
global extension of this inter-European competition for dominance inspired by the realpolitik theoretical premise that all state have an unquenchable thirst for more
and more power.
Realpolitik: the theoretical outlook prescribing that countries should
increase their power and wealth in order to compete with and dominate
- By 1870, british hegemony began to decline. Germany emerged as a industrial stae, as
did the US.
Self Determination and Decolonization in the 20 Centuryh
- 1919 verailles treaty embraced liberalism- the body of theoretical thought that stresses the
importance of ideas, ideals and institutions to generate progress, prosperity and peace.
- Self-determination: the liberal doctrine that people should be able to determine the
government that will rule them.
o Advocated by Woodrow Wilson
- Wilson and other liberal theorists reasoned that freedom would lead to the creation of
states and governments that were content with their territorial boundaries and therefore
less inclined to make war.
- the proposition that self-determination should be extended to Europe`s overseas empire
did not receive serious support.
- Following ww1, the territories controlled by Germany and Ottoman Empire were
transferred under League of Nations auspices to countries that would govern them as
mandates until their eventual self-rule.
- The principle implicit in the League of Nations mandate system gave birth to the idea that
``colonies were a trust rather than simply a property to be exploited and treated as if its
peoples had no rights of their own.
o This set an important precedent after ww2, when the defeated powers ‘territories
placed under the UN trusteeship system were not absorbed by others but were
- the decolonization process accelerated in 1947, when the British consented to the
independence of India and Pakistan.
o War erupted between the two as each sought to gain control over disputed
territory in Kashmir - Despite these political convulsions, decolonization for the most part was not only
extraordinarily rapid but also remarkably peaceful.
o This may be explained by the fact that ww2 sapped the economic and military
vitality of many of the colonial powers.
- In a world increasingly dominated by rivalry between East and West, Cold War
competition for political allies gave both superpower rivals incentive to lobby for the
liberation of overseas empires.
- As the old order crumbled, and as leaders in the newly emancipated territories discovered
that freedom did not translate automatically into autonomy, economic independence, or
domestic prosperity- the conflict between north and south began.
North and South today: worlds apart
- Global south face chronic poverty amidst war, tyranny, and anarchy.
o Increased civil wars in global south
- Democracy has spread rapidly and widely since the 1980s, becoming the preferred mode
of governance throughout much of the Global South as a means of promoting both
economic development and peace.
- Incumbents in global south elections always win
- Many GS countries lack well-developed domestic market economies based on
entrepreneurship and private enterprise.
- More than 796 million people live in one of the thirty-five countries at the bottom of the
globe hierarchy, the least developed of the less developed countries (LLDCs), where
barter of one agricultural good for another (rather than money) typically is used for
o LLDC`s sometimes referred to as Third World`s Third World
Theoretical explanations of underdevelopment
Internal Sources of Underdevelopment
- Liberal economic development theories of modernization first emerged in the early post-
- Modernization: a view of development popular in the Global North`s liberal
democracies that wealth is created through efficient production, free enterprise, and free trade, and that countries`relative wealth depends on technological innovation and
education more than on natural endowments such as climate and resources.
- Major barriers to development were posed by the Global South countries`own internal
- To overcome these barriers, most classical theorists recommened that the wealthy
countries supply various missing components of development, such as investment capital
through foreign aid or private FDI.
- By mid 1970s it was apparent that assistance from rich countries of the Global North had
not brought about significant progress toward prosperity or democracy in GS.
- GS was instead persuaded by the rival theory that attributed its lack of development to
the international links between developing countries and the Global North`s leadership in
the global political economy.
International Sources of underdevelopment
- Whereas classical theory attributes the causes of most developing countries`
underdevelopment to internal conditions within states, dependency theory emphasizes
international factors in general and the GS`s dependence on the dominant great powers in
- Dependency theory: central proposition is that the structure of the capitalist world
economy is based on a division of labour between a dominant core and a subordinate
- as a result of colonialism, the GS countries that make up the periphery have been forced
into an economic role whereby they export raw materials and import finished goods.
- Whereas classical liberal theorists submit that specialization in production according to
comparative advantage will increase income in an unfettered market and therein help
close the gap between the world`s haves and have-nots, dependency theorists maintain
that global inequalities cannot be reduced so long as developing countries continue to
specialize in producing primary products for which there are often numerous competing
suppliers and limited demand.
- Breaking out of their dependent status and pursuing their own industrial development
remains the greatest foreign policy priority for countries in the GS
- Some countries have pursued development through an import-substitution
industrialization strategy designed to encourage domestic entrepreneurs to manufacture
products traditionally imported from abroad. - Import-substitution industrialization fell from favour because manufacturers often found
that they still had to rely on GN technology to produce goods for their domestic markets.
- The preference is now for export- led industrialization, based on the realization that
``what had enriched the rich was not their insulation from imports but their success in
manufactured exports, where higher prices could be commanded than for raw materials.
- Dependency theorists also argue that countries in the GS are vulnerable to cultural
penetration by MNCs and other outside forces
- Dualism refers to the existence of two separate economic and social sectors operating
side by side.
o The separation of a country into two sectors, the first modern and prosperous in
major cities, and the second at the margin, neglected and poor.
o One rich and advanced other regressive and poor
o MNC`s contribute to dualism by favouring a minority of well-compensated
employees over the rest, which increases gaps in pay, and widens differences
between rural and urban economic opportunities.
- Dependency theory cannot explain rapid economic development of what many people
refer to as the newly industrialized countries (NICs)
o NICS: the most prosperous members of the GS, which have become important
exporters of manufactured goods as well as important markets for the major
industrialized countries that export capital goods.
Closing the Gap? The Global South`s Prospects in a World of Great Powers
Technology and Global Communications
- Twenty years ago, NorthAmerica, Europe and Japan produced almost all of the world`s
- Typically GS countries have been unable to develop an indigenous technology
appropriate to their own resources and have been dependent on powerful GN
multinational corporations to transfer technical know-how.
- Countries in GS are making strides in their own technological innovations.
- With the expanding importance of the Internet of the Internet to global commerce and
communcaiton, critics fear that the digital divide in access to communications technology is not closing as rapidly as expected and that small entrepreneurs in the
Global South will be disadvantaged.
o Digital divide: the division between the Internet-technology-rich GN and the GS
in the proportion of Internet users and hosts.
o Communications technology: the technological means through which
information and communications are transferred.
- Most of the growth in the media and telecommunications industries is expected to occur
in GS over the next 5 years.
- Communications technology: the technological means through which information and
communications are transferred
- Information technology: the techniques for storing, retrieving, and disseminating
recorded data and research knowledge through computerization and the Internet.
Insecurity and Weapons of War
- GS countries must face the fateful question of whether they dare to call for help from the
great powers and dominating IGO when violence, terrorism and anarchy prevail.
- Faced with seemingly endless conflict at home or abroad, and a desire to address military
insecuirity, it is not surpising that the GS countries have joined the rest of the world`s
quest to acquire modern weapons of war- including nuclear weapons, as in the cases of
China, India, North korea, and Pakistan
- Few GS states produce own weapons; purchase from GN
Reform of the Economic Order
- In order to gain control over their economic futures, they began coordinating their efforts
within the UN, where their growing numbers and voting power gave them greater
influence than they could otherwise command.
- In the 1960s, they formed a coalition of the world`s poor, the group of 77 (G77),a nd
used their voting power to convene the UN Conference on Trade and Development
(UNCTAD), which later became a permanent UN organization.
- Adecade later, the G77, numbering more than 120 countries, used its UN majority to
push for a New International Economic Order.
o The 1974 UN policy resolution that called for a North-South dialogue to open the
way for the less developed countries of the GS to participate more fully in the
making of international economic policy. o Attempt replace theAmerican dominated regime
Regional trade regimes
- To promote growth through regional economic agreements, in the 1990s the global
economy began to subdivide into three trade blocs- one in Europe, with the EU as its hub;
a second in theAmericas, with the US at the center; and a third in the Global East, with
Japan and China dominant.
o The CentralAmerica- Dominican Republic Free TradeAgreement aims to
emulate NAFTA and create a free-trade zone that includes the US, the Dominican
Republic, Guatemala, El Salvador, Nicaragua, Honduras, and Costa Rica.
o The association ofAsia-Pacific Economic Cooperation(APEC), an informal
forum created in 1989, has committed itself to creating a free-trade zone during
the next 25 years.
o There’s also ASEAN=Association of SoutheastAsian Nations, which promotes a
free trade area
o The Southern African Development Community (SADC) is the largest of twelve
free-trade areas in the region. Objective=facilitate socio-economic cooperation.
o In western region ofAfrica, the Economic Community of WestAfrican States
(ECOWAS) was established in 1975
- Middle East
o There’s the Middle East Free TradeArea (MEFTA)
- Economic complementarity is another essential component, as the goal is to stimulate
greater trade among the members of the free-trade area, not simply between it and other
ForeignAid and Remittances
- One approach for closing the gap between the GS and GN is through the distribution of
foreign assistance. - Although most foreign aid is biltateral and is termed official development assistance-
grants or loans to countries from donor countries, now usually channeled through
multilateral aid institutions such as the World Bank, for the primary purpose of promoting
economic development and welfare.
- Security objectives also traditionally have figured prominently in motives of both
economic and military assistance, and still do.
o US continues to target Israel and Egypt as major recipients to symbolize
friendship, maintain a balance of power, and tilt the scales toward peace in the
o Security was the primary motive behind US foreign assistance to allies following
- Due in part to global economic downturn, many donor countries have not met their
- Many aid donors have become frustrated with the slow growth rates of numerous GS
recipients and have grown impatient and doubtful of the effectiveness of their aid
programs, despite strong evidence that foreign aid has made a positive difference.
- Donors are especially resentful that the countries seeking aid do not value the core
Western values of hard work, economic competition, and entrepreneurial creativity
believed to be crucial for progress and prosperity.
- In response, donors have grown increasingly insistent on “conditionality”, or demands
that aid recipients must meet to receive assitanfce.
- Many GS leaders have joined GN critics of foreign aid, interpreting it as an instrument of
neocolonialism and neoimperialism and resenting the conditionality criteria for receiving
aid imposed by the IMF and other multilateral institutions.
- Much more money-more than double the global total in foreign aid- is primarily funneled
into GS ecnomies through the remittances that migrant labourers working in the GN
faithfully send home to their families.
o Remittances: the money earned by immigrants working in rich countries (which
almost always exceeds the income they could earn working in their home country)
that they send to their families in their home country.
o In 2011, World Bank estimates that $372 billion of the $501 billion in remittances
went to developing countries.
Trade and FDI - The developing countries have long pleaded for trade, not aid to improve their global
position, turning to the NIC’s and the Global East experience to support the view that
access to the Global North’s markets is crucial to Global South economic growth.
- Increased FTA’s between GN and GS
o FTA= free trade agreements
- In an effort to shore up the global economy, global leaders have pledged to finance trade,
resist protectionist measures, and assist the Global South.
- North- South gap has not narrowed so far during the most recent globalization era. Many
GS countries have not improved their lots: market access remains difficult because
domestic pressure groups in these lower GS counties have lobbied their governments to
reduce the imports of other countries’products that compete with their own industries.
- Trade may be preferred to aid, but political barriers often interfere with free trade.
- Another tactic sitting centre stage in the GS’s strategies for escaping destitution and
stagnant economic growth has been to encourage MNCs to funnel an increasing share of
their FDI into its countries, thereby increasing its export earnings to gain a greater share
of global trade.
o FDI: a cross-border investment through which a person or corporation based in
one country purchases or constructs an asset such as a factory or bank in another
country so that a long-term relationship and control of an enterprise by non-
o this strategy has always been controversial, because there are many hidden costs,
or externalities, associated with permitting corporations controlled from abroad to
set up business within the host state for the purpose of making a profit.
o Primary danger with this strategy is the potential for foreign investments to lead
to foreign control and the erosion of sovereign governemnt’s capacities to regulate
the economic within their borders.
o An additional danger is the probability that the multinational foreign investors
will not invest their profits locally but channel them abroad for new investments
or disburse them as dividends for their wealthy GN shareholders.
- FDI flow has boosted GS small economies
- Developing counties are intensifying their competition for foreign investment capital in
order to liberate themselves from dependence and destitution. - FDI is the leading cause of the shift from farm work to service jobs in GS urban areas.
Debt Management and Government Corruption
- Development of GS will depend on how GS countries can manage debt.
o Unsustainable and threatens their economic health and future growth
- Corruption also undermines essential institutional structures and foments a culture of fear
- Abuse of entrusted power for private gain poses enormous costs on 4 dimensions:
o Political: corruption is a barrier to democratic governance and the rule of law.
o Economic: national wealth is depleted through corrupt practices.
o Social: the violation of public trust that results from widespread corruption
weakens civil society.
o Environmental: environmental regulations are often ignored, and environmental
projects re often easy to exploit for private gain.
Global South’s Future
- The future of GS development is certain to depend in the near term on the activities of the
- GN could resort to benign neglect of the GS
- Relations between GS and GN dominated by great powers
- Domination is funnel through the IGOs like the UN and WB
Chapter 12: The Demographic and Cultural Dimensions of Globalization
- Growing numbers of people throughout the world at pursuing universal goals because
global globalization is bringing all humanity together as never before in bonds of
Population Change as a global challenge
- It is instructive to first look at how changes in world population are a part of the
globalization of world politics.
- Demography: the study of population changes, their sources, and their impact. - as the population on this planet increases, globalization is bringing us closer together in a
crowded global village where transnational challenges characterize our borderless world.
- Global village: a popular cosmopolitan perspective describing the growth of awareness
that all people share a common fate because the world is becoming an integrated and
- Evidence strongly suggests that unrestrained population growth will result in strife and
- Population change also forces consideration of standards for ethics.
World Population Growth Rates
- The rapid growth of world population is described by a simple mathematical principle
that Reverend Thomas Malthus noticed in 1798: unchecked, population increases in a
geometric or exponential ratio (e.g., 1 to 2, 2 to 4, 4 to 8), where as subsistence increases
in only an arithmetic ratio ( 1 to 2, 2 to 3, 3 to 4).
- Annual Population growth rate has dropped to about 1.3% and is expected to drop
slightly more to 1.1 percent between now and 2015
- Size of the global population is shaped by worldwide fertility rates and cannot stabilize
until it falls below replacement- level fertility. That will not happen until the total
fertility rate, the world average number of children born to a woman, falls to the rate of
Replacement-level fertility: one couple replacing themselves on average
with two children so that a country’s population will remain stable if this
- Though a global reduction in childbearing and birth rates is now under way – with the
total fertility rate having dropped from 4.8 in 1965 to 2.5 today- world population is
projected to continue to surge because of “population momentum” resulting from a large
number of women now entering their childbearing years.
- Through intentional and sustained efforts of birth control, “ by about 2020, the global
fertility rate will dip below the global replacement rate for the first time” (economist)
- Changes in life expectancy also account for global population growth.
o By 2015, life expectancy at birth is expected to reach 75 years o Improvements in general health conditions have led to declines in mortality, and
global population has grown as people have lived longer lives.
- Regional differences will become more prominent, with 90 percent of the population
growth over the next fifteen years occurring in the GS
Demographic Divisions: Youth Bulges and Aging Populations
- The global population continues to expand, though the growth is much more rapid in the
developing GS countries (which are at least able to support their existing populations)
than in the wealthy GN, where population is declining gradually despite increasingly
longer life spans.
- This portends fulfillment of the demographic divide, which is based on the probability
that the population of the GN will fall to only 10 percent by 2050.
- Africa’s demographic profile is one of rapid population growth
- Europe’s population profile is one slow growth, as recent cohorts have been smaller than
- Europe= low birth rates and a growing number of people who survive middle age.
o Aging society as a result of low birthrates, low death rats, and increased longevity
- High birthrates pose challenges for economic growth and political stability, and a low
birth rate is seen by some as a prerequisite for successful d